The State’s budgetary watchdog has warned that the Government risked undermining its credibility and “repeating Ireland’s past mistakes” if it pressed ahead with plans to breach its own spending rules each year until 2026.
In a pre-budget submission the Irish Fiscal Advisory Council (Ifac), an independent statutory body set up to scrutinise the Government’s fiscal plans and forecasts, also said renewing temporary measures such as the Business Energy Support Scheme when energy prices are beginning to taper off risked adding to price pressures.
Speaking to reporters on Tuesday, acting Ifac chairman Prof Michael McMahon said the Republic’s economy “does not require additional stimulus through a large budgetary package”. The labour market was “now beyond full employment”, with vacancy rates particularly high in some sectors such as construction, and further stimulus risked adding to the price and capacity pressures already being experienced.
He said there was ample “scope” within the parameters of the spending rule, which sets out to limit the overall increase in spending to 5 per cent annually, for “transfers” and “redistribution” from some sectors of the economy to fund additional spending in others.
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Mr McMahon also said there was “reason to be concerned” about the manner in which the Government’s spending plans were revised between April and July. “Such concerns weaken the credibility of Government projections,” he said. “They lack transparency, and still don’t factor in overruns and costs related to population ageing and climate transition.”
Ifac, which can refuse to endorse the Government’s budgetary forecasts, has previously criticised the Coalition’s plans to breach the spending rule. Mr McMahon said “there is a big red button where we don’t endorse, but I think the bar for doing that should be relatively high”. However, he said the council would be more likely to “wield big sticks” in circumstances “where, as we see now, that violation is going to be repeated year after a year”.
Mr McMahon said bumper tax revenues, particularly from corporation tax receipts, drove the public finances into a record €8 billion surplus last year. An overall €10 billion surplus is forecast for this year, potentially rising to €16 billion next year, but relying on this to fund core expenditure risked “repeating Ireland’s past mistakes”, alluding to the State’s overreliance on housing-related tax revenues in the lead up to the 2008 crash.
The Ifac warnings come as budget preparations step up a gear in the Department of Public Expenditure and the Department of Finance ahead of the resumption of politics following the August break. The Cabinet meets for the first time since July on Wednesday, but meetings between budget officials and lobby groups are already under way this week.
Sources said that many government departments were finalising their initial budgetary bids in advance of what was likely to be a tough budget negotiating process.
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Many Ministers are keen to see spending in their areas ramped up, and there is likely to be a strong push for one-off measures to help with the cost of living, as in last year’s budget.
However, they are likely to face strong opposition from the budget Ministers, Michael McGrath and Paschal Donohoe, as they try to limit spending increases and divert resources to long-term funds for saving and future investment.
The budget takes place in October 10th.
